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91_HB2722eng HB2722 Engrossed LRB9101904JSpcA 1 AN ACT concerning risk-based capital regulation for 2 health insurers, amending named Acts. 3 Be it enacted by the People of the State of Illinois, 4 represented in the General Assembly: 5 Section 5. The Illinois Insurance Code is amended by 6 changing Sections 35A-5, 35A-10, 35A-15, 35A-20, 35A-30, 7 35A-55, and 35A-60 as follows: 8 (215 ILCS 5/35A-5) 9 Sec. 35A-5. Definitions. As used in this Article, the 10 terms listed in this Section have the meaning given herein. 11 "Adjusted RBC Report" means an RBC Report that has been 12 adjusted by the Director in accordance with subsection (f) 13(e)of Section 35A-10. 14 "Authorized control level RBC" means the number 15 determined under the risk-based capital formula in accordance 16 with the RBC Instructions. 17 "Company action level RBC" means the product of 2.0 and 18 the insurer's authorized control level RBC. 19 "Corrective Order" means an order issued by the Director 20 in accordance with Article XII 1/2 specifying corrective 21 actions that the Director determines are required. 22 "Domestic insurer" means any insurance company domiciled 23 in this State under Article II, Article III, Article III 1/2, 24 or Article IV or a health organization as defined by this 25 Article, except this shall include only those health 26 maintenance organizations that are "domestic companies" in 27 accordance with Section 5-3 of the Health Maintenance 28 Organization Act and only those limited health service 29 organizations that are "domestic companies" in accordance 30 with Section 4003 of the Limited Health Service Organization 31 Act. HB2722 Engrossed -2- LRB9101904JSpcA 1 "Foreign insurer" means any foreign or alien insurance 2 company licensed under Article VI that is not domiciled in 3 this State and any health maintenance organization that is 4 not a "domestic company" in accordance with Section 5-3 of 5 the Health Maintenance Organization Act and any limited 6 health service organization that is not a "domestic company" 7 in accordance with Section 4003 of the Limited Health Service 8 Organization Act. 9 "Health organization" means an entity operating under a 10 certificate of authority issued pursuant to the Health 11 Maintenance Organization Act, the Dental Service Plan Act, 12 the Limited Health Service Organization Act, or the Voluntary 13 Health Services Plans Act, unless the entity is otherwise 14 defined as a "life, health, or life and health insurer" 15 pursuant to this Act. 16 "Life, health, or life and health insurer" means an 17 insurance company that has authority to transact the kinds of 18 insurance described in either or both clause (a) or clause 19 (b) of Class 1 of Section 4 or a licensed property and 20 casualty insurer writing only accident and health insurance. 21 "Mandatory control level RBC" means the product of 0.70 22 and the insurer's authorized control level RBC. 23 "NAIC" means the National Association of Insurance 24 Commissioners. 25 "Negative trend" means, with respect to a life, health, 26 or life and health insurer, a negative trend over a period of 27 time, as determined in accordance with the trend test 28 calculation included in the RBC Instructions. 29 "Property and casualty insurer" means an insurance 30 company that has authority to transact the kinds of insurance 31 in either or both Class 2 or Class 3 of Section 4 or a 32 licensed insurer writing only insurance authorized under 33 clause (c) of Class 1, but does not include monoline mortgage 34 guaranty insurers, financial guaranty insurers, and title HB2722 Engrossed -3- LRB9101904JSpcA 1 insurers. 2 "RBC" means risk-based capital. 3 "RBC Instructions" means the RBC Report including 4 risk-based capital instructions adopted by the NAIC as those 5 instructions may be amended by the NAIC from time to time in 6 accordance with the procedures adopted by the NAIC. 7 "RBC level" means an insurer's company action level RBC, 8 regulatory action level RBC, authorized control level RBC, or 9 mandatory control level RBC. 10 "RBC Plan" means a comprehensive financial plan 11 containing the elements specified in subsection (b) of 12 Section 35A-15. 13 "RBC Report" means the risk-based capital report required 14 under Section 35A-10. 15 "Receivership" means conservation, rehabilitation, or 16 liquidation under Article XIII. 17 "Regulatory action level RBC" means the product of 1.5 18 and the insurer's authorized control level RBC. 19 "Revised RBC Plan" means an RBC Plan rejected by the 20 Director and revised by the insurer with or without the 21 Director's recommendations. 22 "Total adjusted capital" means the sum of (1) an 23 insurer's statutory capital and surplus and (2) any other 24 items that the RBC Instructions may provide. 25 (Source: P.A. 89-97, eff. 7-7-95; 90-794, eff. 8-14-98.) 26 (215 ILCS 5/35A-10) 27 Sec. 35A-10. RBC Reports. 28 (a) On or before each March 1 (the "filing date"), every 29 domestic insurer shall prepare and submit to the Director a 30 report of its RBC levels as of the end of the previous 31 calendar year in the form and containing the information 32 required by the RBC Instructions. Every domestic insurer 33 shall also file its RBC Report with the NAIC in accordance HB2722 Engrossed -4- LRB9101904JSpcA 1 with the RBC Instructions. In addition, if requested in 2 writing by the chief insurance regulatory official of any 3 state in which it is authorized to do business, every 4 domestic insurer shall file its RBC Report with that official 5 no later than the later of 15 days after the insurer receives 6 the written request or the filing date. 7 (b) A life, health, or life and health insurer's RBC 8 shall be determined under the formula set forth in the RBC 9 Instructions. The formula shall take into account (and may 10 adjust for the covariance between): 11 (1) the risk with respect to the insurer's assets; 12 (2) the risk of adverse insurance experience with 13 respect to the insurer's liabilities and obligations; 14 (3) the interest rate risk with respect to the 15 insurer's business; and 16 (4) all other business risks and other relevant 17 risks set forth in the RBC Instructions. 18 These risks shall be determined in each case by applying the 19 factors in the manner set forth in the RBC Instructions. 20 (c) A property and casualty insurer's RBC shall be 21 determined in accordance with the formula set forth in the 22 RBC Instructions. The formula shall take into account (and 23 may adjust for the covariance between): 24 (1) asset risk; 25 (2) credit risk; 26 (3) underwriting risk; and 27 (4) all other business risks and other relevant 28 risks set forth in the RBC Instructions. 29 These risks shall be determined in each case by applying the 30 factors in the manner set forth in the RBC Instructions. 31 (d) A health organization's RBC shall be determined in 32 accordance with the formula set forth in the RBC 33 Instructions. The formula shall take the following into 34 account (and may adjust for the covariance between): HB2722 Engrossed -5- LRB9101904JSpcA 1 (1) asset risk; 2 (2) credit risk; 3 (3) underwriting risk; and 4 (4) all other business risks and other relevant 5 risks set forth in the RBC Instructions. 6 These risks shall be determined in each case by applying the 7 factors in the manner set forth in the RBC Instructions. 8 (e)(d)An excess of capital over the amount produced by 9 the risk-based capital requirements contained in this Code 10 and the formulas, schedules, and instructions referenced in 11 this Code is desirable in the business of insurance. 12 Accordingly, insurers should seek to maintain capital above 13 the RBC levels required by this Code. Additional capital is 14 used and useful in the insurance business and helps to secure 15 an insurer against various risks inherent in, or affecting, 16 the business of insurance and not accounted for or only 17 partially measured by the risk-based capital requirements 18 contained in this Code. 19 (f)(e)If a domestic insurer files an RBC Report that, 20 in the judgment of the Director, is inaccurate, the Director 21 shall adjust the RBC Report to correct the inaccuracy and 22 shall notify the insurer of the adjustment. The notice shall 23 contain a statement of the reason for the adjustment. 24 (Source: P.A. 88-364; 89-97, eff. 7-7-95.) 25 (215 ILCS 5/35A-15) 26 Sec. 35A-15. Company action level event. 27 (a) A company action level event means any of the 28 following events: 29 (1) The filing of an RBC Report by an insurer that 30 indicates that: 31 (A) the insurer's total adjusted capital is 32 greater than or equal to its regulatory action level 33 RBC, but less than its company action level RBC; or HB2722 Engrossed -6- LRB9101904JSpcA 1 (B) The insurer, if a life, health, or life 2 and health insurer, has total adjusted capital that 3 is greater than or equal to its company action level 4 RBC, but less than the product of its authorized 5 control level RBC and 2.5 and has a negative trend. 6 (2) The notification by the Director to the insurer 7 of an Adjusted RBC Report that indicates an event 8 described in paragraph (1), provided the insurer does not 9 challenge the Adjusted RBC Report under Section 35A-35. 10 (3) The notification by the Director to the insurer 11 that the Director has, after a hearing, rejected the 12 insurer's challenge under Section 35A-35 to an Adjusted 13 RBC Report that indicates the event described in 14 paragraph (1). 15 (b) In the event of a company action level event, the 16 insurer shall prepare and submit to the Director an RBC Plan 17 that does all of the following: 18 (1) Identifies the conditions that contribute to 19 the company action level event. 20 (2) Contains proposed corrective actions that the 21 insurer intends to take and that are expected to result 22 in the elimination of the company action level event. A 23 health organization is not prohibited from proposing 24 recognition of a parental guarantee or a letter of credit 25 to eliminate the company action level event; however the 26 Director shall, at his discretion, determine whether or 27 the extent to which the proposed parental guarantee or 28 letter of credit is an acceptable part of a satisfactory 29 RBC Plan or Revised RBC Plan. 30 (3) Provides projections of the insurer's financial 31 results in the current year and at least the 4 succeeding 32 years, both in the absence of proposed corrective actions 33 and giving effect to the proposed corrective actions, 34 including projections of statutory operating income, net HB2722 Engrossed -7- LRB9101904JSpcA 1 income, capital, and surplus. The projections for both 2 new and renewal business may include separate projections 3 for each major line of business and separately identify 4 each significant income, expense, and benefit component. 5 (4) Identifies the key assumptions affecting the 6 insurer's projections and the sensitivity of the 7 projections to the assumptions. 8 (5) Identifies the quality of, and problems 9 associated with, the insurer's business including, but 10 not limited to, its assets, anticipated business growth 11 and associated surplus strain, extraordinary exposure to 12 risk, mix of business, and use of reinsurance, if any, in 13 each case. 14 (c) The insurer shall submit the RBC Plan to the 15 Director within 45 days after the company action level event 16 occurs or within 45 days after the Director notifies the 17 insurer that the Director has, after a hearing, rejected its 18 challenge under Section 35A-35 to an Adjusted RBC Report. 19 (d) Within 60 days after an insurer submits an RBC Plan 20 to the Director, the Director shall notify the insurer 21 whether the RBC Plan shall be implemented or is, in the 22 judgment of the Director, unsatisfactory. If the Director 23 determines the RBC Plan is unsatisfactory, the notification 24 to the insurer shall set forth the reasons for the 25 determination and may set forth proposed revisions that will 26 render the RBC Plan satisfactory in the judgment of the 27 Director. Upon notification from the Director, the insurer 28 shall prepare a Revised RBC Plan, which may incorporate by 29 reference any revisions proposed by the Director. The 30 insurer shall submit the Revised RBC Plan to the Director 31 within 45 days after the Director notifies the insurer that 32 the RBC Plan is unsatisfactory or within 45 days after the 33 Director notifies the insurer that the Director has, after a 34 hearing, rejected its challenge under Section 35A-35 to the HB2722 Engrossed -8- LRB9101904JSpcA 1 determination that the RBC Plan is unsatisfactory. 2 (e) In the event the Director notifies an insurer that 3 its RBC Plan or Revised RBC Plan is unsatisfactory, the 4 Director may, at the Director's discretion and subject to the 5 insurer's right to a hearing under Section 35A-35, specify in 6 the notification that the notification constitutes a 7 regulatory action level event. 8 (f) Every domestic insurer that files an RBC Plan or 9 Revised RBC Plan with the Director shall file a copy of the 10 RBC Plan or Revised RBC Plan with the chief insurance 11 regulatory official in any state in which the insurer is 12 authorized to do business if that state has a law 13 substantially similar to the confidentiality provisions in 14 subsection (a) of Section 35A-50 and if that official 15 requests in writing a copy of the plan. The insurer shall 16 file a copy of the RBC Plan or Revised RBC Plan in that state 17 no later than the later of 15 days after receiving the 18 written request for the copy or the date on which the RBC 19 Plan or Revised RBC Plan is filed under subsection (c) or (d) 20 of this Section. 21 (Source: P.A. 88-364; 89-97, eff. 7-7-95.) 22 (215 ILCS 5/35A-20) 23 Sec. 35A-20. Regulatory action level event. 24 (a) A regulatory action level event means any of the 25 following events: 26 (1) The filing of an RBC Report by the insurer that 27 indicates that the insurer's total adjusted capital is 28 greater than or equal to its authorized control level 29 RBC, but less than its regulatory action level RBC. 30 (2) The notification by the Director to an insurer 31 of an Adjusted RBC Report that indicates the event 32 described in paragraph (1), provided the insurer does not 33 challenge the Adjusted RBC Report under Section 35A-35. HB2722 Engrossed -9- LRB9101904JSpcA 1 (3) The notification by the Director to the insurer 2 that the Director has, after a hearing, rejected the 3 insurer's challenge under Section 35A-35 to an Adjusted 4 RBC Report that indicates the event described in 5 paragraph (1). 6 (4) The failure of the insurer to file an RBC 7 Report by the filing date, unless the insurer has 8 provided an explanation for the failure that is 9 satisfactory to the Director and has cured the failure 10 within 10 days after the filing date. 11 (5) The failure of the insurer to submit an RBC 12 Plan to the Director within the time period set forth in 13 subsection (c) of Section 35A-15. 14 (6) The notification by the Director to the insurer 15 that the insurer's RBC Plan or revised RBC Plan is, in 16 the judgment of the Director, unsatisfactory and that the 17 notification constitutes a regulatory action level event 18 with respect to the insurer, provided the insurer does 19 not challenge the determination under Section 35A-35. 20 (7) The notification by the Director to the insurer 21 that the Director has, after a hearing, rejected the 22 insurer's challenge under Section 35A-35 to the 23 determination made by the Director under paragraph (6). 24 (8) The notification by the Director to the insurer 25 that the insurer has failed to adhere to its RBC Plan or 26 Revised RBC Plan, but only if that failure has a 27 substantial adverse effect on the ability of the insurer 28 to eliminate the company action level event in accordance 29 with its RBC Plan or Revised RBC Plan and the Director 30 has so stated in the notification, provided the insurer 31 does not challenge the determination under Section 32 35A-35. 33 (9) The notification by the Director to the insurer 34 that the Director has, after a hearing, rejected the HB2722 Engrossed -10- LRB9101904JSpcA 1 insurer's challenge under Section 35A-35 to the 2 determination made by the Director under paragraph (8). 3 (b) In the event of a regulatory action level event, the 4 Director shall do all of the following: 5 (1) Require the insurer to prepare and submit an 6 RBC Plan or, if applicable, a Revised RBC Plan to the 7 Director within 45 days after the regulatory action level 8 event occurs or within 45 days after the Director 9 notifies the insurer that the Director has, after a 10 hearing, rejected its challenge under Section 35A-35 to 11 either an Adjusted RBC Report or a Revised RBC Plan. 12 However, if the insurer previously prepared and submitted 13 an RBC Plan or a Revised RBC Plan in accordance with any 14 provision of this Article, the Director may determine 15 that the previously prepared RBC Plan or Revised RBC Plan 16 satisfies the requirement of this subsection (b)(1). 17 (2) Perform any examination or analysis of the 18 assets, liabilities, and operations of the insurer, 19 including a review of its RBC Plan or Revised RBC Plan, 20 that the Director deems necessary. 21 (3) After the examination or analysis, issue a 22 Corrective Order specifying the corrective actions the 23 Director determines are required. 24 (c) In determining corrective actions, the Director may 25 take into account any factors the Director deems relevant 26 based upon the examination or analysis of the assets, 27 liabilities, and operations of the insurer including, but not 28 limited to, the results of any sensitivity tests undertaken 29 under the RBC Instructions. The regulatory action level event 30 shall be deemed sufficient grounds for the Director to issue 31 a Corrective Order in accordance with Article XII 1/2. The 32 Director shall have rights, powers, and duties with respect 33 to the insurer that are set forth in Article XII 1/2 and the 34 insurer shall be entitled to the protections afforded HB2722 Engrossed -11- LRB9101904JSpcA 1 insurers under Article XII 1/2. 2 (d) The Director may retain actuaries, investment 3 experts, and other consultants necessary to review an 4 insurer's RBC Plan or Revised RBC Plan, examine or analyze 5 the assets, liabilities, and operations of the insurer, and 6 formulate the Corrective Order with respect to the insurer. 7 The fees, costs, and expenses related to the actuaries, 8 investment experts, and other consultants shall be reasonable 9 and customary for the nature of the services provided and 10 shall be borne by the affected insurer or the party 11 designated by the Director. 12 (Source: P.A. 89-97, eff. 7-7-95; 90-794, eff. 8-14-98.) 13 (215 ILCS 5/35A-30) 14 Sec. 35A-30. Mandatory control level event. 15 (a) A mandatory control level event means any of the 16 following events: 17 (1) The filing of an RBC Report that indicates that 18 the insurer's total adjusted capital is less than its 19 mandatory control level RBC. 20 (2) The notification by the Director to the insurer 21 of an Adjusted RBC Report that indicates the event 22 described in paragraph (1), provided the insurer does not 23 challenge the Adjusted RBC Report under Section 35A-35. 24 (3) The notification by the Director to the insurer 25 that the Director has, after a hearing, rejected the 26 insurer's challenge under Section 35A-35 to the Adjusted 27 RBC Report that indicates the event described in 28 paragraph (1). 29 (b) In the event of a mandatory control level event with 30 respect to a life, health, or life and health insurer, the 31 Director shall take actions necessary to place the insurer in 32 receivership under Article XIII. In that event, the 33 mandatory control level event shall be deemed sufficient HB2722 Engrossed -12- LRB9101904JSpcA 1 grounds for the Director to take action under Article XIII, 2 and the Director shall have the rights, powers, and duties 3 with respect to the insurer that are set forth in Article 4 XIII. If the Director takes action under this subsection 5 regarding an Adjusted RBC Report, the insurer shall be 6 entitled to the protections of Article XIII. If the Director 7 finds that there is a reasonable expectation that the 8 mandatory control level event may be eliminated within 90 9 days after it occurs, the Director may delay action for not 10 more than 90 days after the mandatory control level event. 11 (c) In the case of a mandatory control level event with 12 respect to a property and casualty insurer, the Director 13 shall take the actions necessary to place the insurer in 14 receivership under Article XIII or, in the case of an insurer 15 that is writing no business and that is running-off its 16 existing business, may allow the insurer to continue its 17 run-off under the supervision of the Director. In either 18 case, the mandatory control level event is deemed sufficient 19 grounds for the Director to take action under Article XIII, 20 and the Director has the rights, powers, and duties with 21 respect to the insurer that are set forth in Article XIII. 22 If the Director takes action regarding an Adjusted RBC 23 Report, the insurer shall be entitled to the protections of 24 Article XIII. If the Director finds that there is a 25 reasonable expectation that the mandatory control level event 26 may be eliminated within 90 days after it occurs, the 27 Director may delay action for not more than 90 days after the 28 mandatory control level event. 29 (d) In the case of a mandatory control level event with 30 respect to a health organization, the Director shall take the 31 actions necessary to place the insurer in receivership under 32 Article XIII or, in the case of an insurer that is writing no 33 business and that is running-off its existing business, may 34 allow the insurer to continue its run-off under the HB2722 Engrossed -13- LRB9101904JSpcA 1 supervision of the Director. In either case, the mandatory 2 control level event is deemed sufficient grounds for the 3 Director to take action under Article XIII, and the Director 4 has the rights, powers, and duties with respect to the 5 insurer that are set forth in Article XIII. If the Director 6 takes action regarding an Adjusted RBC Report, the insurer 7 shall be entitled to the protections of Article XIII. If the 8 Director finds that there is a reasonable expectation that 9 the mandatory control level event may be eliminated within 90 10 days after it occurs, the Director may delay action for not 11 more than 90 days after the mandatory control level event. 12 (Source: P.A. 88-364; 89-97, eff. 7-7-95.) 13 (215 ILCS 5/35A-55) 14 Sec. 35A-55. Provisions of Article supplemental; 15 exemptions. 16 (a) The provisions of this Article are supplemental to 17 the provisions of any other laws of this State and do not 18 preclude or limit other powers or duties of the Director 19 under any other laws. 20 (b) The Director may exempt from the application of this 21 Article any domestic property and casualty insurer that: 22 (1) writes direct business only in this State; 23 (2) writes direct annual premiums of $2,000,000 or 24 less; and 25 (3) assumes no reinsurance in excess of 5% of 26 direct premium written. 27 (c) The Director may exempt from the application of this 28 Article any company that is organized under Article IV of 29 this Code, that writes direct business only in this State, 30 and that assumes no reinsurance in excess of 5% of direct 31 written premiums. 32 (d) The Director may exempt from the application of this 33 Article any domestic health organization upon a showing by HB2722 Engrossed -14- LRB9101904JSpcA 1 the health organization of the reasons for requesting the 2 exemption and a determination by the Director of good cause 3 for an exemption. 4 (e)(d)The Director may by rule impose upon any insurer 5 exempted from the application of this Article under 6 subsection (b),or(c), or (d) of this Section conditions to 7 the exemption that require maintenance of adequate capital. 8 These conditions shall not exceed the requirements of this 9 Article. 10 (Source: P.A. 88-364; 89-97, eff. 7-7-95.) 11 (215 ILCS 5/35A-60) 12 Sec. 35A-60. Phase-in of Article. 13 (a) For RBC Reports filed with respect to the December 14 31, 1993 annual statement, instead of the provisions of 15 Sections 35A-15, 35A-20, 35A-25, and 35A-30, the following 16 provisions apply: 17 (1) In the event of a company action level event, 18 the Director shall take no action under this Article. 19 (2) In the event of a regulatory action level event 20 under paragraph (1), (2), or (3) of subsection (a) of 21 Section 35A-20, the Director shall take the actions 22 required under Section 35A-15. 23 (3) In the event of a regulatory action level event 24 under paragraph (4), (5), (6), (7), (8), or (9) of 25 subsection (a) of Section 35A-20 or an authorized control 26 level event, the Director shall take the actions required 27 under Section 35A-20. 28 (4) In the event of a mandatory control level 29 event, the Director shall take the actions required under 30 Section 35A-25. 31 (b) For RBC Reports required to be filed by property and 32 casualty insurers with respect to the December 31, 1995 33 annual statement, instead of the provisions of Section HB2722 Engrossed -15- LRB9101904JSpcA 1 35A-15, 35A-20, 35A-25, and 35A-30, the following provisions 2 apply: 3 (1) In the event of a company action level event 4 with respect to a domestic insurer, the Director shall 5 take no regulatory action under this Article. 6 (2) In the event of aanregulatory action level 7 event under paragraph (1), (2) or (3) of subsection (a) 8 of Section 35A-20, the Director shall take the actions 9 required under Section 35A-15. 10 (3) In the event of aanregulatory action level 11 event under paragraph (4), (5), (6), (7), (8), or (9) of 12 subsection (a) of Section 35A-20 or an authorized control 13 level event, the Director shall take the actions required 14 under Section 35A-20. 15 (4) In the event of a mandatory control level 16 event, the Director shall take the actions required under 17 Section 35A-25. 18 (c) For RBC Reports required to be filed by health 19 organizations with respect to the December 31, 1999 annual 20 statement and the December 31, 2000 annual statement, instead 21 of the provisions of Sections 35A-15, 35A-20, 35A-25, and 22 35A-30, the following provisions apply: 23 (1) In the event of a company action level event 24 with respect to a domestic insurer, the Director shall 25 take no regulatory action under this Article. 26 (2) In the event of a regulatory action level event 27 under paragraph (1), (2), or (3) of subsection (a) of 28 Section 35A-20, the Director shall take the actions 29 required under Section 35A-15. 30 (3) In the event of a regulatory action level event 31 under paragraph (4), (5), (6), (7), (8), or (9) of 32 subsection (a) of Section 35A-20 or an authorized control 33 level event, the Director shall take the actions required 34 under Section 35A-20. HB2722 Engrossed -16- LRB9101904JSpcA 1 (4) In the event of a mandatory control level 2 event, the Director shall take the actions required under 3 Section 35A-25. 4 This subsection does not apply to a health organization 5 that provides or arranges for a health care plan under which 6 enrollees may access health care services from contracted 7 providers without a referral from their primary care 8 physician. 9 Nothing in this subsection shall preclude or limit other 10 powers or duties of the Director under any other laws. 11 (Source: P.A. 88-364; 89-97, eff. 7-7-95.) 12 Section 10. The Dental Service Plan Act is amended by 13 changing Section 25 as follows: 14 (215 ILCS 110/25) (from Ch. 32, par. 690.25) 15 Sec. 25. Application of Insurance Code provisions. 16 Dental service plan corporations and all persons interested 17 therein or dealing therewith shall be subject to the 18 provisions of Articles IIA andArticleXII 1/2 and Sections 19 3.1, 133, 140, 143, 143c, 149, 355.2, 367.2, 401, 401.1, 402, 20 403, 403A, 408, 408.2, and 412, and subsection (15) of 21 Section 367 of the Illinois Insurance Code. 22 (Source: P.A. 86-600; 87-587; 87-1090.) 23 Section 15. The Health Maintenance Organization Act is 24 amended by changing Section 5-3 as follows: 25 (215 ILCS 125/5-3) (from Ch. 111 1/2, par. 1411.2) 26 Sec. 5-3. Insurance Code provisions. 27 (a) Health Maintenance Organizations shall be subject to 28 the provisions of Sections 133, 134, 137, 140, 141.1, 141.2, 29 141.3, 143, 143c, 147, 148, 149, 151, 152, 153, 154, 154.5, 30 154.6, 154.7, 154.8, 155.04, 355.2, 356m, 356v, 356w, 356x, HB2722 Engrossed -17- LRB9101904JSpcA 1 367i, 401, 401.1, 402, 403, 403A, 408, 408.2, 409, 412, 444, 2 and 444.1, paragraph (c) of subsection (2) of Section 367, 3 and Articles IIA, VIII 1/2, XII, XII 1/2, XIII, XIII 1/2, 4 XXV, and XXVI of the Illinois Insurance Code. 5 (b) For purposes of the Illinois Insurance Code, except 6 for Sections 444 and 444.1 and Articles XIII and XIII 1/2, 7 Health Maintenance Organizations in the following categories 8 are deemed to be "domestic companies": 9 (1) a corporation authorized under the Dental 10 Service Plan Act or the Voluntary Health Services Plans 11 Act; 12 (2) a corporation organized under the laws of this 13 State; or 14 (3) a corporation organized under the laws of 15 another state, 30% or more of the enrollees of which are 16 residents of this State, except a corporation subject to 17 substantially the same requirements in its state of 18 organization as is a "domestic company" under Article 19 VIII 1/2 of the Illinois Insurance Code. 20 (c) In considering the merger, consolidation, or other 21 acquisition of control of a Health Maintenance Organization 22 pursuant to Article VIII 1/2 of the Illinois Insurance Code, 23 (1) the Director shall give primary consideration 24 to the continuation of benefits to enrollees and the 25 financial conditions of the acquired Health Maintenance 26 Organization after the merger, consolidation, or other 27 acquisition of control takes effect; 28 (2)(i) the criteria specified in subsection (1)(b) 29 of Section 131.8 of the Illinois Insurance Code shall not 30 apply and (ii) the Director, in making his determination 31 with respect to the merger, consolidation, or other 32 acquisition of control, need not take into account the 33 effect on competition of the merger, consolidation, or 34 other acquisition of control; HB2722 Engrossed -18- LRB9101904JSpcA 1 (3) the Director shall have the power to require 2 the following information: 3 (A) certification by an independent actuary of 4 the adequacy of the reserves of the Health 5 Maintenance Organization sought to be acquired; 6 (B) pro forma financial statements reflecting 7 the combined balance sheets of the acquiring company 8 and the Health Maintenance Organization sought to be 9 acquired as of the end of the preceding year and as 10 of a date 90 days prior to the acquisition, as well 11 as pro forma financial statements reflecting 12 projected combined operation for a period of 2 13 years; 14 (C) a pro forma business plan detailing an 15 acquiring party's plans with respect to the 16 operation of the Health Maintenance Organization 17 sought to be acquired for a period of not less than 18 3 years; and 19 (D) such other information as the Director 20 shall require. 21 (d) The provisions of Article VIII 1/2 of the Illinois 22 Insurance Code and this Section 5-3 shall apply to the sale 23 by any health maintenance organization of greater than 10% of 24 its enrollee population (including without limitation the 25 health maintenance organization's right, title, and interest 26 in and to its health care certificates). 27 (e) In considering any management contract or service 28 agreement subject to Section 141.1 of the Illinois Insurance 29 Code, the Director (i) shall, in addition to the criteria 30 specified in Section 141.2 of the Illinois Insurance Code, 31 take into account the effect of the management contract or 32 service agreement on the continuation of benefits to 33 enrollees and the financial condition of the health 34 maintenance organization to be managed or serviced, and (ii) HB2722 Engrossed -19- LRB9101904JSpcA 1 need not take into account the effect of the management 2 contract or service agreement on competition. 3 (f) Except for small employer groups as defined in the 4 Small Employer Rating, Renewability and Portability Health 5 Insurance Act and except for medicare supplement policies as 6 defined in Section 363 of the Illinois Insurance Code, a 7 Health Maintenance Organization may by contract agree with a 8 group or other enrollment unit to effect refunds or charge 9 additional premiums under the following terms and conditions: 10 (i) the amount of, and other terms and conditions 11 with respect to, the refund or additional premium are set 12 forth in the group or enrollment unit contract agreed in 13 advance of the period for which a refund is to be paid or 14 additional premium is to be charged (which period shall 15 not be less than one year); and 16 (ii) the amount of the refund or additional premium 17 shall not exceed 20% of the Health Maintenance 18 Organization's profitable or unprofitable experience with 19 respect to the group or other enrollment unit for the 20 period (and, for purposes of a refund or additional 21 premium, the profitable or unprofitable experience shall 22 be calculated taking into account a pro rata share of the 23 Health Maintenance Organization's administrative and 24 marketing expenses, but shall not include any refund to 25 be made or additional premium to be paid pursuant to this 26 subsection (f)). The Health Maintenance Organization and 27 the group or enrollment unit may agree that the 28 profitable or unprofitable experience may be calculated 29 taking into account the refund period and the immediately 30 preceding 2 plan years. 31 The Health Maintenance Organization shall include a 32 statement in the evidence of coverage issued to each enrollee 33 describing the possibility of a refund or additional premium, 34 and upon request of any group or enrollment unit, provide to HB2722 Engrossed -20- LRB9101904JSpcA 1 the group or enrollment unit a description of the method used 2 to calculate (1) the Health Maintenance Organization's 3 profitable experience with respect to the group or enrollment 4 unit and the resulting refund to the group or enrollment unit 5 or (2) the Health Maintenance Organization's unprofitable 6 experience with respect to the group or enrollment unit and 7 the resulting additional premium to be paid by the group or 8 enrollment unit. 9 In no event shall the Illinois Health Maintenance 10 Organization Guaranty Association be liable to pay any 11 contractual obligation of an insolvent organization to pay 12 any refund authorized under this Section. 13 (Source: P.A. 89-90, eff. 6-30-95; 90-25, eff. 1-1-98; 14 90-177, eff. 7-23-97; 90-372, eff. 7-1-98; 90-583, eff. 15 5-29-98; 90-655, eff. 7-30-98; 90-741, eff. 1-1-99; revised 16 9-8-98.) 17 Section 20. The Limited Health Service Organization Act 18 is amended by changing Section 4003 as follows: 19 (215 ILCS 130/4003) (from Ch. 73, par. 1504-3) 20 Sec. 4003. Illinois Insurance Code provisions. Limited 21 health service organizations shall be subject to the 22 provisions of Sections 133, 134, 137, 140, 141.1, 141.2, 23 141.3, 143, 143c, 147, 148, 149, 151, 152, 153, 154, 154.5, 24 154.6, 154.7, 154.8, 155.04, 355.2, 356v, 401, 401.1, 402, 25 403, 403A, 408, 408.2, 409, 412, 444, and 444.1 and Articles 26 IIA, VIII 1/2, XII, XII 1/2, XIII, XIII 1/2, XXV, and XXVI of 27 the Illinois Insurance Code. For purposes of the Illinois 28 Insurance Code, except for Sections 444 and 444.1 and 29 Articles XIII and XIII 1/2, limited health service 30 organizations in the following categories are deemed to be 31 domestic companies: 32 (1) a corporation under the laws of this State; or HB2722 Engrossed -21- LRB9101904JSpcA 1 (2) a corporation organized under the laws of 2 another state, 30% of more of the enrollees of which are 3 residents of this State, except a corporation subject to 4 substantially the same requirements in its state of 5 organization as is a domestic company under Article VIII 6 1/2 of the Illinois Insurance Code. 7 (Source: P.A. 90-25, eff. 1-1-98; 90-583, eff. 5-29-98; 8 90-655, eff. 7-30-98.) 9 Section 25. The Voluntary Health Services Plans Act is 10 amended by changing Section 10 as follows: 11 (215 ILCS 165/10) (from Ch. 32, par. 604) 12 Sec. 10. Application of Insurance Code provisions. 13 Health services plan corporations and all persons interested 14 therein or dealing therewith shall be subject to the 15 provisions of Articles IIA andArticleXII 1/2 and Sections 16 3.1, 133, 140, 143, 143c, 149, 354, 355.2, 356r, 356t, 356u, 17 356v, 356w, 356x, 367.2, 401, 401.1, 402, 403, 403A, 408, 18 408.2, and 412, and paragraphs (7) and (15) of Section 367 of 19 the Illinois Insurance Code. 20 (Source: P.A. 89-514, eff. 7-17-96; 90-7, eff. 6-10-97; 21 90-25, eff. 1-1-98; 90-655, eff. 7-30-98; 90-741, eff. 22 1-1-99.) 23 Section 99. Effective date. This Act takes effect upon 24 becoming law.